A tight labour market forces businesses to spend more to develop their employees’ skills
Economists love worker training, but companies are often reluctant to provide it. The benefits of training can walk out the door if newly skilled workers are poached by a competitor. “I call it the ‘I drink your milkshake’ problem,” says Jake Schwartz, chief executive officer and co-founder of General Assembly, a computer-coding boot camp acquired this year by Switzerland-based staffing firm Adecco Group AG. In the years before the global financial crisis, companies steadily decreased training. The U.S. Census Bureau found that just 11 percent of workers received employer-sponsored training in 2008, down from 19 percent in 1996. When the financial crisis hit, throwing millions out of work, training seemed less important than ever: Why spend the money when you can pick up the skills you need from the bountiful ranks of the jobless?
Now, though, corporate attitudes appear to be shifting, albeit gradually. While the Census Bureau hasn’t reprised its count of employer-provided training since 2008, the Association for Talent Development, in a survey focused mainly on advanced economies, found that direct training expenditures rose from $1,081 per employee in 2009 (the first year of the survey) to $1,273 in 2016. The U.S. ranks near the top of the global heap, with 66 percent of workers receiving training from employers in the past year, according to the Organization for Economic Cooperation and Development (see chart).
Near-record-low unemployment is one big reason companies are recommiting to training. With a U.S. jobless rate of just 3.7 percent in September and more than 7 million unfilled positions as of August, employers can’t find the people they need in the ranks of the jobless, and luring them away from other employers has gotten prohibitively expensive in some cases. “Your choice is always make or buy. ‘Buy’ is steal somebody else’s worker, which requires higher wages,” says Anthony Carnevale, founder and director of Georgetown University’s Center on Education and the Workforce.
Fifty-five percent of U.S. employers surveyed by ManpowerGroup this year said they were providing additional training to cope with talent shortages, followed by 40 percent who said they were recruiting outside their traditional talent pool. Only 26 percent said they were offering higher salaries.
Rapidly changing job requirements also demand more training. Just a few years ago experts were predicting that computers and robots would soon make flesh-and-blood workers obsolete. Someday, perhaps, but for now the main effect of automation has been to force humans to develop new skills to work with intelligent machines, rather than for them. “All of a sudden you look up and you say, ‘Oh, we still do need workers,’ ” says Jacob Duritsky, vice president for strategy and research at Team NEO, an economic development organisation for northeastern Ohio.
Employers are discovering that becoming a learning organisation is a good way to fend off headhunters. Especially now, with change happening so quickly, workers will stick with a company that helps them continuously upgrade their skills, says Bill Priemer, CEO of Hyland Software Inc. in Westlake, Ohio. In a survey this year by LinkedIn Inc., 94 percent of employees said they would stay at a company longer if it invested in their career development.
That’s not to say all training is good. A lot of employers teach “tightly specified, highly standardised tasks” that will soon be taken over by computers, says John Hagel, co-chairman of the Center for the Edge, a unit of Deloitte LLP that researches business and technology. Hagel says companies should instead be drawing out employees’ “curiosity, imagination, creativity, emotional intelligence, social intelligence,” which are harder for machines to replicate.
There’s also a tussle over who should do the training: employers or schools. Community colleges are often willing to tailor curricula to employers’ needs, but even they balk at teaching specific tasks that will be useful to just one or two businesses. Executives, meanwhile, complain that the U.S. educational system is pumping out unqualified graduates. In a recent survey of OECD nations, U.S. millennials scored lower than their peers in 15 of 22 countries in literacy and were tied for last in numeracy and “problem solving in a technology-rich environment,” according to an analysis of the results by the Educational Testing Service. Employers often have to provide remedial training for entry-level workers in areas such as basic math.
Because worker training benefits the society as a whole, not just the individual employer, there’s an economic case that government should provide it directly or at least subsidise it. Yet in the U.S., public spending on labour markets (which includes unemployment benefits) has fallen from 0.8 percent of gross domestic product in 1985 to 0.3 percent in 2016, according to OECD data. In July, President Trump signed an executive order creating a Council of the American Worker and directing funds to apprenticeships and retraining for older workers without college degrees. On the other hand, the current administration sought—but failed to secure—a 40 percent cut in funding for the Workforce Innovation and Opportunity Act, the biggest federal worker retraining programme.
Achieving the right balance between public and private is tricky. Thijs van Rens, an economist at Britain’s University of Warwick, says his research with colleague Roland Rathelot and others finds that public funding for training is largely a giveaway to employers.
Singapore offers a model of how to combine the two. It subsidises qualifying companies that provide training through its new SkillsFuture initiative, but the grants don’t cover the full cost. That discourages companies from offering sham training just to get money from the government.
Anna Lim, the founder and majority owner of Soup Spoon Pte, which owns 30 restaurants in Singapore, says she had to have her instructors certified and her training results regularly audited to get SkillsFuture to pick up part of the tab. Does she worry that other companies that don’t train will free-ride on her investment? Not much. “In Singapore right now we have stopped thinking like that,” she says. “At the end of the day it’s about uplifting the skill set of the whole industry. We have to be broad-minded.”
To upgrade the world’s workforce for the skills of the future, the ideal environment is what economists call a high-trust equilibrium: Each employer invests in training because it’s confident others will do likewise. We’re not quite there yet. Peter Coy
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